Efforts by the Boston Company to spruce up its US Opportunities fund have so far proved counterproductive.
Last February, the Massachusetts-based BNY Mellon subsidiary revamped the fund’s approach from targeting the biggest companies on the US stock market to a broader focus, which includes investing in smaller shares.
But George Saffaye, senior strategist on the fund, said the move hindered the portfolio last year, as larger companies put in the best performance overall.
“Our broader exposure proved to be a bit of a headwind when large-cap equities outperformed,” he said.
The £103m UK-based fund, which launched in 1986, returned just 13.5 per cent in 2014 as the wider S&P 500 index rose 25.7 per cent, according to data from FE Analytics.
Mr Saffaye said he remained confident in the portfolio’s prospects for the year ahead. He pointed out that the fund had also reduced its exposure to energy stocks, which have suffered amid the recent oil price slump.
That sell-off began in mid-2014 as the oil price first showed signs of decline. The energy shares were sold off entirely by the end of the year. At the start of 2014 the fund had 6-7 per cent in energy stocks.
“Valuations [in oil-related stocks] have to come in,” Mr Saffaye said.
“Right now, companies are still pricing oil in at $90 per barrel. That is going to have to change.”
Brent crude oil prices dipped below $50 per barrel earlier this year — a figure less than half the $115 per barrel price seen last June.
There is doubt over the future of the commodity’s price, with some warning it could dip to below $40 per barrel and remain low for years to come. Others, however, believe it might recover to remain closer to $90 in future.
The team redirected the cash proceeds of the energy-stock sales into purchases in the healthcare sector as part of its judgment that innovation in areas such as pharmaceuticals and biotechnology would lead to compelling growth.
The fund’s healthcare weighting was 18 per cent at the end of last year, according to the latest available data.
Mr Saffaye said the fund was positioned with the view that a full return to economic growth remained a distant prospect.
“We are out of the recession cycle and the gross domestic product rate has accelerated, but it is a marathon not a sprint,” he said. “Recovery is about one or two years away.”
Kathleen Gallagher is a reporter at Investment Adviser
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